The striking growth inhibitory effect of 8-Cl-cAMP has been related to its selective binding and activation of cAMP-dependent protein kinase (PKA) isozymes: It binds to RII regulatory subunit with a high affinity for Site B but with a low affinity for Site A, keeping type II PKA in the holoenzyme form, while binding with moderately high affinity for both Site A and Site B to RI regulatory subunit, facilitating dissociation of the RI subunit and down-regulation of type I PKA. The cellular events underlying growth inhibition and differentiation of cancer cells induced by 8-Cl-cAMP include a rapid nuclear translocation of RII-beta, and such translocation of RII-beta into the nucleus correlates with an increase in transcription factors in cancer cells that bind specifically to cAMP response element (CRE). The RI and RII are distinguished by their autophosphorylation and nuclear translocation properties. RII has an autophosphorylation site at a proteolytically sensitive hinge region around the R and C interaction site while RI has a pseudo-phosphorylation site. The RII but not the RI contains a nuclear location signal, K K R K. Overexpression of the RII-beta through an expression vector in several cancer cell lines results in a striking shift in PKA isozyme distribution, growth arrest, differentiation, and reverse transformation. The growth inhibition and reverse transformation correlates with nuclear translocation of RII-beta, as the mutant RII- beta which fails to translocate into the nucleus is incapable of inducing reverse transformation. cAMP through the activation of PKA, is involved in transcriptional regulation in eukaryotic cells. In this mechanism of action, cAMP does not alter the binding affinity of CRE- binding proteins to the CRE. In contrast, cAMP enhances the CRE-binding of the catabolite repressor protein (CAP) in prokaryotic cells and regulates the transcription of several operons. The structural similarity of the cAMP-binding sites in CAP and RII subunit of PKA suggests the possibility of a similar role for RII in eukaryotic gene regulation. Here we report that RII-beta subunit of PKA is a transcription factor capable of interacting physically and functionally with the CRE. In contrast to CREB/ATF, the binding of RII-beta to a CRE was enhanced by cAMP, and in addition, RII-beta exhibited transcriptional activity as a Gal4-RII-beta fusion protein. These experiments identify RII-beta as a component of an alternative pathway for regulation of CRE-directed transcription in eukaryotic cells.